‘Indonesia with 10,000 nuclear warheads’ (US official’s description of worst case scenario in Russia). Capital took flight from Russia on 15 May. ‘Unsettled by the upheavals in Indonesia, a looming current account deficit and the inexperience of a newly appointed government,’ explained the Economist, ‘investors lighted on the Russian rouble as the currency at next greatest risk of collapse.’ By 27 May a $2.5 billion oil privatisation had collapsed, the stock market was down 50 percent on the beginning of the year and interest rates had soared to 150 percent.

The central bank had spent $1.5 billion in a fortnight to stave off devaluation. Russia’s reserves were down to a dangerously low $14 billion. On 29 May a leading international credit rating agency placed Russia on the same risk level as Lebanon (just below Jamaica). A slight recovery in the following week saw interest rates cut to a mere 60 percent. But shares fell by 16.6 percent in the week ending 13 June due to continuing turmoil in Asia and lack of concrete help from the industrialised countries and the IMF.

In Asia the crash came after a prolonged boom. The crash in Russia comes after an unprecedented slump. Between 1989 and 1997 the Russian economy, measured in terms of gross domestic product (GDP), shrank by 57 percent. Losses in national wealth between 1991 and 1997 are estimated at $1.2 trillion, three times greater than during the Second World War. With manufacturing industry devastated, Russia’s export earnings are dependent on oil, gas and metals. But prices of such commodities plunged from 20 to 40 percent between December 1997 and March 1998 due to falls in demand.

The disaster of Russia’s gamble on the market goes on. But the government’s options are narrowing. High interest rates may stem capital flight and protect the rouble. But they squeeze a debt ridden banking system. According to the economics minister, it will take the best part of a year to get interest rates back down to 25 percent, a level at which a quarter of public spending goes on servicing government debt. So far the government has failed to sell adequate bonds to finance itself. And repayments on existing debts start to mount in three years time. Devaluation might sharpen the competitiveness of Russia’s raw material exports. But Russia’s dependence on manufactured imports means that devaluing the rouble could reignite a catastrophic inflation.

An IMF approved austerity plan includes a 3 percent increase in tax revenue and a 15 percent cut in public spending involving 230,000 public sector job cuts and an end to index linked pensions. The plan reeks of the arrogance of the Russian upper class. Russian enterprises already owe $16 billion in pension contributions and payment arrears rose by over 350 percent during April. Tax dodgers are estimated to have smuggled $25 billion out of Russia since 1991. Tax collected last year amounted to less than 11 percent of GDP. Yet big tax debtors like the giant gas monopoly Gazprom have not even been targeted.

On the other hand, miners on strike, mainly over $573 million in unpaid wages, were accused by a minister of living in houses ‘fit for Hollywood stars’. The miners – joined by teachers, doctors and even scientists – have challenged the government’s ability to implement cuts. Between 15 and 26 May they blockaded key railway lines. The railways lost $75 million. The government earmarked $88 million to settle the dispute. But as usual there is uncertainty about whether the money is actually getting through.

The miners, who face 50,000 job losses this year, became a focus for everyone sick of suffering for a corrupt, vicious and incompetent regime. Elections for three regional governorships went against the government as the crisis broke. Militancy has begun to stir in the crucial oil and gas industries. Not a promising start for a government only two months old with parliamentary elections due next year and a presidential election with no obvious candidate the year after that. The prospects for Russian capitalism look extraordinarily grim.